Although the big banks still dominate the SME market, business owners are switching to regional banks in increasing numbers.

Small business owners continue to be the most disadvantaged sector when it comes to dealing with the banks. East & Partners latest Business Banking Index survey, which monitors business customer behaviour towards banks, found SMEs (turnover between $1m and $20m) scored their banks a miserly 13 (where 10 = low and 100 = high) whilst corporate and institutional clients rated their banks at 60 and 30 respectively.

The result for small businesses was the worst since 2006 which may not surprise but what is telling is the significant disparity between the big four and the regional banks. Bank of Queensland and St George consistently score above average with satisfaction rates in excess of 70 per cent compared to an average of 35 per cent for the big four banks.

East & Partners analyst Jessica Gao said the big four’s low aggregate score reflects “persistent dissatisfaction, compounding over an extended period of time whilst the results for the regional banks reflect positive sentiment and customer confidence”.

So why are SMEs seemingly more engaged with the smaller banks as compared to some of the big four? What are they doing better than the bigger banks?

Regional bank executives explain.

Greg Pink, general manager of SME Banking at BoQ, says his bank is focused on building relationships with customers, which appeals to many SMEs. “Some of the other banks have scale advantages and choose to focus on more transactional models. Generally they’re very good at this transactional approach, but our experience is that many SMEs highly appreciate the value of relationships, which reflects the way most of them do business themselves,” Pink says.

Pink believes the owner-manager model is a big part of BoQ’s success because managers are small business owners themselves. But he says the bank’s relationship model works because it has a team that understands the needs of SMEs and, “more importantly, has given them the ability to make decisions in partnership with their customers”.

Whatever BoQ is doing it is working, with the business loan book currently growing at an annualised rate of 10% whilst asset quality remains strong.

Bank of Melbourne, one of St George Bank’s two regional brands (Bank SA being the other) sees itself as Victoria’s local bank and aims to offer a more tailored service to its business customers. The Head of SME Banking with Bank of Melbourne, Rebekah Haig, says its branches and business banking centres are staffed by locals, who are connected to their communities.

“Our bankers know that the business owners are at the heart of our local communities and economy. Our aim is to get to be a part of the business owner community and learn as much as we can to serve even better and beyond ‘traditional’ banking products and services,” Haig says.

“Our bankers can be more agile and responsive in a way that a larger bank simply cannot. The key difference is our bankers are passionate about business owners and we celebrate their ambition and innovation.”

Since Westpac revived the brand in 2011, Bank of Melbourne has grown its SME customer base threefold and its team of business bankers has increased seven fold.

Stephen Gorman, head of business banking at Bendigo Bank, also says that investing in relationships at a local level “is at the core of our strategy”. According to Gorman, Bendigo Bank business customers “appreciate our commitment to community and great customer service which invariably leads to word of mouth referrals from other customers looking for the same kind of relationship”.

The common theme with the regional banks is the connection between community, the business owner and the banks’ relationship managers. Research and anecdotal evidence indicate that small business owners see regional bankers as more empathetic, accessible and able to make quicker decisions. This is partly due to the structure of regional banks, which better supports bankers to stay and grow in their roles.

The regional banks have clearly been able to develop and deliver on value propositions that are resonating with small business customers. Emboldened with this success and coming off a lower base it is likely that their growth rates will continue to outstrip the big banks.

Regional banks are a genuine alternative for small businesses and they do pose a threat to the big four dominance in this segment. For small businesses owners who have been crying out for greater competition this is good news.